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New Venture Partner Template

Overview

Venture Share is a template agreement for venture capital firms to quickly engage top Venture Partners worldwide. The following is an outline of the topics covered:

Venture Partners
  • Venture Partners are part-time members of a venture capital team.
Model
  • Venture Partners are compensated with carried interest in a fund.
Activities
  • Venture Partners help with 5 types of activities at a fund: executive functions, fundraising, strategic, operating and portfolio assistance.
Compensation
  • Venture Partner compensation ranges based on the type of activity and the seniority of the individual.
Venture Partner Compensation 1
Venture Partner Compensation Ranges
Negotiation
  • There are 4 steps to negotiate a Venture Partner engagement using Venture Share.
Agreement
  • Download the Venture Share Agreement to engage and compensate Venture Partners.

Thousands of new Venture Partners are needed to fill the ranks of emerging venture capital firms worldwide.

Adeo Ressi, CEO of VC Lab

A Venture Partner is a part-time team member of a venture capital firm, providing strategic, operating and portfolio support. Venture Partners are experts in a field, and they are compensated with a share in the upside from venture capital firms, called carried interest.

VC Lab has developed a free Venture Share Agreement (see below) that is designed to be used by venture capital firms and Venture Partners alike to quickly start working together. The template agreement is designed to specify the duties and compensation of a Venture Partner by checking boxes.

Venture Partners can apply for roles at hundreds of funds worldwide with one application at a new VC Lab job portal. Candidates submit a resume and cover letter (apply here), and the next batch of placements will begin in April of 2022.

Venture Partner Model

Venture Partners are normally compensated with carried interest, versus receiving a salary. Carried interest or carry is generated from the fund performance, and it aligns incentives well, since Venture Partners only get compensated when the fund has positive returns. Here is an example to explain how it works.

In this hypothetical situation, there is a Venture Partner with 5% carry in a $10 MM fund. The fund has 20% carry from the limited partners, which are the investors. The fund returns $30 MM, and all returns over $10 MM have the carry of 20% deducted. So, we take 20% of the $20 MM, which is $4 MM, and we then take 5% of $4 MM for the Venture Partner, which is $200,000. In this hypothetical, a 5% Venture Partner position will earn $200,000. 

Fund models commonly project between 5x and 7x, which is greater than the 3x above. A Venture Partner will normally put in a few hours per week over a couple of years, and then get paid over ten years as portfolio companies exit in the fund.

Venture Partner Activities

There are five major types of activities for Venture Partners defined in the Venture Share Agreement:

EXECUTIVE

Executive Venture Partner assists with the management of General Partner:

  • Complete due diligence on potential investment opportunities.
  • Expand branding on social media and help with the overall exposure of the fund.
  • Help complete investments into target portfolio companies.
  • Serve as a director or advisor to target portfolio companies.
  • Source deals from pre-agreed networks and channels.
FUNDRAISING

Fundraising Venture Partner assists General Partner with fundraising activities:

  • Coordinate follow-up between interested investors and General Partner.
  • Create awareness of the Fund among desired target audiences.
  • Identify contacts that are suitable for the Fund’s fundraising pipeline.
STRATEGIC 

Strategic Venture Partner provides General Partner with credibility by providing their knowledge and expertise in an industry or subject matter:

  • Advise General Partner on strategic matters in the Venture Partner’s area of expertise.
  • Identify publicly they work with General Partner.
  • Share news and information with their relevant networks to help General Partner.
OPERATING

Operating Venture Partner provides day-to-day assistance with activities related to the management and operations of the Fund, which may include marketing, accounting, finance, legal, diligence or other back office support:

  • Assisting General Partner to increase the value of the Fund and support any stakeholders.
  • Provide back office support.
  • Respond to inquiries from General Partner.
PORTFOLIO

A Portfolio Venture Partner works on one or more deals where they are actively involved in the management of the investment. 

  • Support the onboarding and growth of a portfolio company in the Fund.
Venture Partner Compensation

Venture capital firms have a range of compensation for the different types of activities performed by Venture Partners. VC Lab surveyed a few hundred venture capitalists to identify the generally accepted ranges, which is used in the Venture Share Agreement:

Venture Partner Compensation with the Venture Share Agreement

Base CarryMiddle CarryAdvanced Carry
Help MonthlyHelp WeeklyHelp Daily
Executive3%5%10%
Fundraising2%4%6%
Strategic1%2%4%
Operating1%2%4%
Portfolio 0.1%0.5%1%

The base, middle and advanced carry levels relate to the time commitment of the Venture Partner, as well as their seniority. 

Venture Partner Negotiation

The Venture Capital Firm and the Venture Partner can quickly agree on core economic terms using the Venture Share Agreement. There are four steps.

  • First, select the relevant activities that a Venture Partner will perform (like above). 
  • Next,  look at the “Venture Partner Compensation Guidelines” table for the highest category of any activity, such as Operating or Executive. 
  • Then, determine if the Venture Partner is helping monthly (Base Carry), weekly (Middle Carry) or daily (Advanced Carry).
  • Lastly, decide on the years of vesting for the carry, the duration of the vesting cliff and whether expenses will be reimbursed.
Venture Share Agreement

The Venture Share Agreement is a free template to quickly structure a Venture Partner relationship. It can not be signed until all of the entities are formed. It can be used for negotiation before forming the entities.

Version 1 of the template focused on a United States domiciled fund in Delaware is available below: 

NOTE: In the Venture Share Agreement, Venture Partners are shareholders in the General Partner entity for compliance with U.S. 409a tax regulations

Post questions on the Venture Share Agreement in the comments.

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Cornerstone LPA Insights Legal Templates

Cornerstone Limited Partner Agreement

Cornerstone is a lightweight and easy-to-use Limited Partnership Agreement for next-generation venture capital funds. It was released by VC Lab in October of 2021. Cornerstone is designed to reduce mundane and expensive fund formation activities, removing barriers of entry for new managers and new limited partners to enter and grow the venture capital asset class.

A Limited Partnership Agreement (LPA) is the document that forms and governs a venture capital fund. It specifies the rules between the general partners, who make portfolio investments, and their investors, the limited partners. It serves as the operating manual for the venture business.

Traditionally, the LPA is accompanied by a Term Sheet and a Subscription Agreement, and this set of documents normally runs over a couple hundred pages in length. Cornerstone unifies a Term Sheet, a Limited Partnership Agreement and a Subscription Agreement into one document, and Cornerstone is just 36 pages long.

Domicile

Cornerstone is currently localized for fund formations in Delaware, United States. In surveying 73 next generation venture capital firms from around the world, 52% have chosen Delaware for their domicile. Additional localizations for Cornerstone are being planned for other popular fund formation domiciles. You can learn more about fund domiciles in this Venture Capital Domicile Report

How to Use Cornerstone

Cornerstone Carry
A sample Key Economic Term from the Cornerstone template agreement
with plug values for the general partner to customize.

Cornerstone is designed for a General Partner and Limited Partner to start discussing terms for a new venture capital fund without needing an expensive fund formation lawyer on either side. Here are the three steps to use Cornerstone:

  1. A General Partner takes the Cornerstone template agreement and customizes plug variables in the Key Economic Terms for a new fund offering.
  2. The General Partner shares the customized Cornerstone with engaged limited partners for feedback on the terms.
  3. Once the terms are agreed, the general partner engages with a law firm to form the fund entities using pre negotiated agreement.

The simplified process eliminates billable hours with fund formation attorneys, who often charge an hourly rate in excess of $1,000 USD. VC Lab is making Cornerstone available for free.

Four venture capital firms have used Cornerstone and this three step process to close on capital, and more have started subsequently. More funds are in process to use Cornerstone now, and a few of their experiences are quoted below:

I decided to create my fund in Delaware as a general partner in Latin America, and we selected Cornerstone for our LPA. My investors loved it because it is easy to understand, despite being from outside of the United States, and, for many of them, it was their first investment as an LP. It helped with my closing.

David Alvo Verdugo, Impacta VC

I’ve been in fund management for more than a decade before launching my own Fund. Compared to the massive and complex LPAs I have seen in the past, the Cornerstone LPA is dead simple to use.  This will enable more high net worth individuals to understand and enter VC as LPs.

Kevin Brockland, Indelible Ventures

I was able to edit Cornerstone and send it to my Limited Partners without the help of attorneys. The negotiation was very efficient, and I was able to manage the process in the way that I wanted to.

Bade Aluko, White Hibiscus Capital

If you have suggestions, questions or comments, please add them under “Leave a Reply” below. Cornerstone will be updated with new versions semi-annually, and you can download the most up-to-date agreement here.

Cornerstone was written by lawyers for business people, whereas most Limited Partnership Agreements are written by lawyers for lawyers. A number of legal innovations are introduced with the agreement, including:

  • Cornerstone consolidates all of the key economic terms into the front of the agreement, saving readers the ability to scan through dozens of pages to find critical information.
  • Cornerstone moves complex tax and regulatory language to the back of the agreement, allowing the document to read more clearly and be localized more easily. 
  • Cornerstone simplifies the operational components of the fund to 13 pages by eliminating definitions of numerous eventualities, leaving multiple decisions at the description of general partners and limited partners.
  • Cornerstone introduces concepts of fairness and ethics, adding an optional affirmation for all signatories to pledge support for the Mensarius Oath.
  • Cornerstone removes references to specific laws that already govern the agreement and reduces cross referencing, allowing the agreement to be read without needing to refer to other documents.

Special Thanks

VC Lab would like to thank everyone for their contributions to this groundbreaking legal agreement. Cornerstone was drafted over five months by VC Lab in conjunction with Rich Gora and Hans Kim. A number of U.S. and global law firms have reviewed and provided feedback on the drafting. Dozens of limited partners and general partners have also contributed feedback and ideas.

Questions?

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Insights Legal Templates Resources

The PACT

PACT (“Pledge Agreement for Capital Transaction”) is a non-binding letter of intent signed by a qualified investor to indicate their desire to invest a specific amount of money into a startup or into a venture capital fund. The PACT is a Commitment Letter, which is commonly used in financial transactions.

The PACT Letter was developed in 2018 by the Founder Institute to solve the problem of internal fund offerings having excess investor interest. Before the creation of the PACT, it was difficult to identify which potential investors were serious about investing, commonly referred to as Hard Circled, and which other investors were casually exploring the investment, referred to as Soft Circled. Collecting signed PACT Letters provides a clear way to calculate the Hard Circled total, which reduces the uncertainty and guesswork of closing a multi-party investment round.

When a potential investor signs the PACT, they indicate their clear desire to invest, and they specify the amount of their desired investment. The PACT Letter asks the potential investor to self-identify as qualified and includes some limited confidentiality around the sharing of the deal terms. Lastly, the PACT also asks potential investors to provide correct information on the individual or entity making the investment, which is often needed to customize the closing agreements.

The process to secure PACT Letters from potential investors works as follows. All potential investors that express interest in an offering are provided a PACT to fill out and sign, ideally digitally. The PACT lists three options for the desired investment amount based on the size of the round, also offering a field to enter a custom amount. The legal language in the PACT is non-binding and in plain English, so filling out and signing a PACT Letter takes a couple of minutes.

A PACT template is below for anyone to use, and a couple of sample emails are also provided for assistance. The Founder Institute has successfully used the PACT in both the Funding Lab and VC Lab programs, helping startups raise capital in 3 to 6 months and helping new venture capital managers complete a first close in 4 to six months.

The PACT Letter Template

Sample Email to Limited Partners

Subject: Appreciate your feedback

Hello,

Thank you for reviewing the materials on [our new fund]. We are now collecting feedback on our term sheet before preparing the definitive agreements for our first close.

If you would like to review the draft term sheet and receive the final closing documents, can you please sign and return the attached PACT Letter? I have also sent this to you for digital signature through [this digital signature service].

I look forward to receiving your feedback on the closing. Thank you.